01 Mar What is EDI?
Electronic Data Interchange (or simply, EDI) is the sharing and exchange of business documents and other related information in an electronic format from computer to computer and between corporate associates and business partners in a standard and structured format. EDI has a slew of benefits and advantages; cost effectiveness, faster processing and business operations, thinner error margin and better business relationships between colleagues. All these are achieved through the basic transformation of business related data from the paper-based format to a more durable and mobile electronic form. As given in the definition, we will take time to analyze every important concept:
- Computer-to- computer: EDI comes as a perfect substitution for business communication means; postal mail, fax and email, the latter because although email is still categorized as an electronic medium, messages sent via this medium are still handled by people. Involving third parties and middlemen in information sharing has the potential to introduce errors and slow down operations. This is where EDI prevails more. Documents passed via EDI will flow directly to the right application on the receiving computer system and with that, business operations regarding the message can begin in earnest. The ideal manual information dissemination process that involves third parties and paper-format information will ideally look like this:
- With no paper or third parties involved, the EDI process looks like this:
- Business documents: As the name implies, a business document is any information or data that is shared between businesses and colleagues. Using EDI, the most frequently shared business documents include purchase orders, purchase order acknowledgements, advance ship notices and invoices. However, the list doesn’t stop here; there are also other documents including bills of landing, custom documents, inventory documents, shipping status documents and payment confirmations.
- Standard format: EDI documents are processed with computers, not humans. Due to this, the documents passed via EDI must be within a standard that can be read and processed by the computer also known as mapping. Mapping is essentially the process of data from one format to another which allows for business document integration. A standard format gives a clear description of what each piece of information comprises and what format they belong to (for instance; name, dd/mm/yyyy, upper case, etc) . In the absence of this standard format, every company would send documents with the use of company-specific formats and this could lead to catastrophe and misunderstanding as just as an English-speaking company may have staff members that don’t understand Mandarin, the receiving computer might not be able to fully decipher the sender’s company-specific format.
- There are quite a number of EDI standards that are being used today, with the most popular ones being ANSI X12 , ebXML and EDIFACT. It is also worth noting that for each standard, there are different versions (for instance, ANSI 5100, EDIFACT vD12). When two companies decide to share documents between themselves, they must come to an agreement as to what EDI standard format and version to employ. Data Translation is key in this process to ensure data is being correctly interpreted to follow EDI Standards (ANSI X12, ebXML, or EDIFACT).
- Businesses make use of EDI translators- either as company-employed software or through the additional services of an EDI service provider- to effectively decipher the EDI format so that their internally-used applications and software can make good and seamless use of the data. This process enhances the straight and quicker processing of documents.
- Business partners: When EDI documents are exchanged, they are usually done between two companies. These companies, for the duration of their data sharing, are referred to as business or trading partners. For instance, if Apple and Microsoft decide to enter into trade; Apple needs chipsets, Microsoft needs Siri compatibility software. Apple and Microsoft, for the period of their trade, are regarded as business partners.
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